Bitcoin
Bitcoin crash triggers warning of “future problems” for global markets
(Bloomberg) — Bitcoin’s plunge is sparking interest from investors who see pronounced swings in the digital token as a possible precursor to broader shifts in risk appetite in global markets.
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The cryptocurrency is down about 4% in the last two days after a nearly 16% drop in April, the worst monthly drop since Sam Bankman-Fried’s FTX digital asset empire imploded in November 2022. The token changed hands for $57,462 at 7:24 a.m. Thursday in London, around a two-month low.
Some investors scour Bitcoin’s inflections for clues about changes in liquidity dynamics that could affect other assets. The token has fallen in recent weeks as the Federal Reserve signaled that interest rates will remain higher for longer, a mantra that has tightened financial conditions by pushing up Treasury yields and the dollar.
“Bitcoin is our favorite canary,” wrote Charlie Morris, chief investment officer at ByteTree Asset Management, in a note. “It’s a warning about future problems in financial markets, but we can be confident it will recover at some point.”
The biggest digital asset hit a record high of nearly $74,000 in mid-March, driven by a flood of inflows into the first U.S. spot Bitcoin exchange-traded funds from companies like BlackRock Inc.
Demand for the products subsequently fizzled and markets failed to gain a tailwind from this week’s launch of spot Bitcoin and Ether ETFs in Hong Kong.
Discounts to the net asset value of some US portfolios have increased notably, highlighting the challenges of Bitcoin’s volatility. On Wednesday, the group of US spot ETFs suffered the largest daily net outflow on record.
Read more: Buffets record US Bitcoin ETF outflow BlackRock, Fidelity Funds
Macroforces
Bitcoin has recorded four April crashes over the past decade, three of which presaged May losses that averaged 18%, according to data compiled by Bloomberg.
Still, if inflationary pressures ease and markets revive bets on a much more flexible stance from the Fed, crypto and other speculative investments could find some relief.
Fed Chairman Jerome Powell kept hopes alive for a rate cut this year after the central bank concluded its latest meeting on Wednesday. But he also acknowledged that a burst of inflation has undermined confidence that price pressures are easing.
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“The next three to four months will be less optimistic and more risk-oriented, with the market closely monitoring inflation, employment and economic data for any unexpected shocks or to gain confidence about potential rate cuts,” said Youwei Yang, chief economist and vice president. President of crypto mining company BIT Mining Ltd.
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